Steph Thomas rarely hears from homebuyers looking to pull out mid-purchase. Four rang up the mortgage broker after the government curbed investor tax breaks in last week’s budget.
Two were investors weighing the budget’s impacts but two were owner-occupiers, entirely unaffected but worried by the reforms, Thomas said.
The average buyer “doesn’t necessarily understand” what terms like capital gains tax or negative gearing mean, or how they apply to them, and “people are a bit scared”, Thomas says.
“It’s just making them pause, where before it felt like there was a bit of a frenzy.”
Fear is expected to weigh on property prices, according to multiple forecasts, with sentiment already weighed down by rising interest rates and broad economic pessimism.
Economists believe home values are set for their first national slump since 2022, though Australia’s persistent housing shortage means any fall would be short term.
More than half of the homes listed for auction in Sydney in budget week did not sell, the city’s weakest result since pandemic lockdowns began in April 2020, preliminary Cotality data suggests. Ray White reported open home attendance fell by a sixth nationwide.
Auctions have recorded a national clearance rate below 60% for much of the past two months, putting the market in price fall territory, according to Cotality analysts.
“There’s a lot of people in media talking about the potential of rental prices increasing and property prices dropping dramatically,” Thomas said.
“When they heard it in the media and it came out strong, I think people just get frightened because they don’t understand what it actually means.”
The ‘scare campaign’
Labor’s changes target those making future property investments, who will no longer enjoy negative gearing on most property purchases and will be taxed at the new inflation-adjusted rate for their capital gains.
The country’s 2.3 million investors will retain all the tax advantages and paper profits they enjoy on their existing 3.3m properties. Treasury forecasts just a fraction will exit, pushing rents up less than $2 a week on average and allowing about 75,000 people, or 1% of all Australian renters, to enter the market. Investors will still be able to negatively gear newly built homes, and some economists believe the reforms will leave some better off as they can still deduct rental losses from tax on their capital gains.
None of this has stopped parts of the property industry, and some commentators, from raising the alarm.
Tom Panos, top real estate agent and auctioneer for TV show The Block, has predicted an investor exodus.
“My DMs are exploding in the last four or five hours with people saying ‘Tom, should I sell, Tom I’m nervous,” he said on Instagram.
Jack Henderson, a real estate agent and social media influencer sporting a red cap that reads “GREEDY LANDLORD”, has predicted a 15% boom in rents. Sam Gordon, another influencer, said investors may simply stop buying and selling.
The post-budget Newspoll found more people expected to be worse off than better off after the budget, across all surveyed groups, including young people and renters.
Sign up for the Breaking News Australia emailThe treasurer, Jim Chalmers, on Monday blamed the result partly on “an unhinged scare campaign from people with a partisan or commercial interests”, saying the government was trying to fix the under-taxation of property investment.
“It’s driven this situation where house prices have grown more than twice the rate of incomes,” Chalmers said.
“What we’re doing is introducing a fairer, more neutral treatment … taking out that distortion which has locked too many young Australians out of housing in the first place.”
A short term slump?
Economists believe the strength of homebuyers’ and investors’ reaction to the budget could drag the housing market from weak growth to a short-term slump.
Investor activity had contributed to home prices rising nearly 10% in the year to February in the capital cities, according to Cotality. That pace has slowed to just 3%, on an annualised basis in May.
Trent Saunders, a Commonwealth Bank economist, said the fundamentals of the tax changes mean house prices should end 2026 growing at a pace of 3%.
Slumping buyer sentiment, over and above the fundamentals, would undermine the already weak market, he said.
Home lending has already recorded its sharpest start-of-year slowdown since 2019, weighed down by three consecutive interest rate rises and rising living costs.
The number of new loans fell 6.2% in the first three months of 2026 compared with the prior three months, the Australian Bureau of Statistics reported last week.
Investor lending fell 5.3% after rising to record highs in 2025 to make up two in every five loans.
Labor’s tax changes are largely designed to rebalance that ratio in favour of owner-occupiers, not achieve a specific pace of price growth. Chalmers has said he expects house prices to continue to rise at a slower rate in the long term.
In the short term, though, economists from NAB, Macquarie, Barrenjoey, HSBC and UBS, expect house prices to fall. Cotality data suggests the median price in Australia’s capital cities has already started falling.
Matt Bowes, housing expert at the Grattan Institute, said the reforms’ small drag on house prices would help housing affordability in the short term.
“If we’re going to see houses become more affordable over time, we need to slow the pace of house price growth,” Bowes said.
“Having house prices grow more slowly than living standards for a number of years would be a positive outcome, in terms of making up for a huge number of years where the inverse was true.”
Shane Oliver, the chief economist at AMP, expects the price hit to arrive quickly as investors step back.
“This will no doubt be chalked up as a win for the policy change,” Oliver said.
“[But] the property market had already slowed down and then the tax changes add to that.”
The expected slump would be the first sustained fall in Australian home prices since 2022, where prices fell about 7.5% in eight months. Another eight months later, prices had made up their losses.
Chalmers has said housing supply is “the main game” for improving affordability but the government’s housing council expects Australia will fall 220,000 homes short of its goal to build 1.2m new homes by 2029.
Oliver believes Australia’s undersupply of homes will push prices back up once interest rates ease and the tax shock passes.
